Purpose: This study identifies the determinants of business performance and the challenges faced by small and medium enterprises (SMEs) in Papua New Guinea (PNG), a Pacific island economy characterised by geographic fragmentation, infrastructure deficits and a large informal sector.

Design/methodology/approach: A cross-sectional survey of 100 SME owners and managers in Lae City, Madang and Goroka commercial centers measured access to finance, government support, entrepreneurial competence, and infrastructure and market environment by five-point Likert statements, against a five-item business performance scale. Frequencies, weighted means and standard deviations described the data. Pearson correlation and ordinary least-squares regression tested the determinants.

Findings: Entrepreneurial competence (WM = 3.85; β = 0.35, p < .001) and access to finance (WM = 2.60; β = 0.26, p = 0.004) were significant positive predictors of performance; government support was also significant (β = 0.24, p = 0.007), while infrastructure and market environment (the lowest-rated construct, WM = 2.25) was not significant in the multivariate model (p = 0.538), reflecting a binding structural constraint common to all firms. The model explained 41% of variance (adj. R² = 0.39, F = 16.78, p < .001).

Key challenges included costly formal finance, inconsistent policy implementation, unreliable power and transport, and law-and-order costs.

Practical and social implications: SME growth requires a dual strategy - building owner-manager financial and planning capabilities while removing external bottlenecks through targeted finance, streamlined regulation and infrastructure investment.

Originality/value: The study offers rare empirical evidence on SME performance determinants in the Pacific Islands, extending resource-based and institutional theory to an under-researched context.